When it comes to popular quotes on precious metals, silver often takes a backseat to gold. The white metal is frequently called “gold’s little brother,” “poor man’s gold,” and the “common’s man metal.” Perhaps the best-known example calls gold the money of kings, while silver is the money of gentlemen. However, gold is not always the most-desired precious metal. In fact, one of the world’s largest populated nations craves silver.
India is home to the 10th largest economy in the world but consumes more silver than any other country. In 2013, India imported an estimated 5,400 tons of silver, according to a new educational video from Endeavour Silver (NYSE:EXK). That is more than double the 1,900 tons imported in 2012 and higher than the recent peak of 5,049 tons imported in 2008. Of the world’s annual silver production, India consumes more than 20 percent.
Endeavour Silver’s video on India’s silver demand is the latest in an ongoing series of short videos at the miner’s Silver Hub, a place to learn about silver and how the silver industry works. Let’s take a look at seven reasons why India imports so much silver.
Indian cultural and religious customs place significant emphasis on gift giving, especially when it comes to weddings. Silver is a popular gift choice, as it is considered to bring good luck. The country’s jewelry industry was valued at more than $40 billion in 2013 and experiences strong demand from over 10 million Indian weddings every year.
Silver appeals to a large percentage of India. Gold may be preferred by the middle- and upper-class populations, but silver is the metal of choice among the rural population, which represents about 70 percent of the population. Considering the price tag of an ounce of gold, silver is simply more affordable.
A similar effect is seen in the United States. In 2013, the U.S. Mint sold a record-breaking 42.675 million ounces of American Silver Eagle coins — the biggest haul of silver coins sold in a single year since the U.S. Mint started producing the series in 1986. In comparison, the Mint only sold 856,500 ounces of its American Gold Eagle.
There is a huge crowd of people inclined to purchase silver as a gift or investment. India’s population is large in percentage and absolute terms. India’s population of 1.2 billion represents a sixth of the world’s entire population.
There is a lack of investment options in India. In fact, it can be difficult to invest in anything else besides precious metals. Cash is undesirable because of high inflation rates of around 8 percent. Meanwhile, government corruption and distrust leads to poor sentiment in traditional financial instruments such as stocks, mutual funds, and government bonds. Indians tend to prefer physical assets such as land and precious metals.
In contrast to the West, where precious metals revolve around paper and electronic trading, silver investment involves actual physical trades in India, which adds to the demand for imports. A trade in India usually involves taking physical possession of the silver. The metal has to be present for the transaction to be valid.
Eastern markets are becoming increasingly known for their physical demand. In the World Gold Council’s latest report, consumer demand for gold jewelry, bars, and coins totaled a record 2,896.5 tons for the first nine months of 2013. As the chart above shows, the majority of growth in consumer demand came from eastern markets.
Gold is becoming harder to purchase on the market. To combat a growing trade deficit, the Indian government has imposed a 10 percent import tax on gold. This has driven India’s monthly gold imports significantly lower, making the precious metal more scarce. Since silver is often seen as a substitute for gold, its not surprising that India’s silver demand has risen to record levels.
Only one-third of India’s population has a bank account. Government red tape and regulations make opening an account and depositing money difficult. In contrast, gold and silver are widely accepted without documentation. This helps make precious metals an ideal choice as a currency.
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Disclosure: Long EXK, HL, PHYS